Hindware Home Innovation Limited (HINDWAREAP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Somany Home Innovation Limited Q4 FY '21 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Amit Zade from Antique Stock Broking. Thank you, and over to you, sir.

Thank you, Dennis, and good afternoon, everyone. On behalf of Antique Stock Broking, I would like to welcome all the participants on the 4Q FY '21 Earnings Call of Somany Home Innovations Limited. I would now hand over call to Gavin from CDR India to introduce you to the management. Over to you, Gavin.

Thank you, Amit. Good day, everyone, and warm welcome to you participating in SHIL's Q4 and FY '21 earnings call. We have with us today from the management, Mr. Rakesh Kaul, Whole Time Director and CEO; Mr. Sudhanshu Pokhriyal, COO of Bath Fittings, Brilloca Ltd.; Mr. Rajesh Pajnoo, President, Pipes, Brilloca Ltd., Mr. Sandeep Sikka, Group CFO; and Mr. Naveen Malik, CFO, SHIL. Before we begin, I would like to mention that some statements made in today's discussions may be forward-looking in nature. The actual results may vary as they are dependent on several external factors as well. A statement to this effect has been included in the results presentation sent to you earlier. We shall start the call with opening remarks from the management followed by an interactive Q&A session. I will now request Mr. Naveen Malik to open the call. Over to you, Naveen.

Thank you, Gavin. Good afternoon. And welcome to Somany Home Innovation Limited Q4 and FY '21 Earnings Call. I hope you and your family are safe in these difficult times. I will walk you through our financial performance for the quarter and year-on-year, following which Mr. Rakesh Kaul; Mr. Sudhanshu Pokhriyal and Mr. Rajesh Pajnoo, will discuss the key highlights of the businesses. We have delivered a robust performance in Q4 FY '21. All our businesses have performed well, as can be seen in the results. Consolidated revenues from operations for Q4 amounted to INR 613 crores, 68% higher on a year-on-year basis and 11% on a sequential basis. Our continuous growth is largely driven by the strong performance across our businesses. EBITDA for the quarter stood at INR 70 crore, higher by 181% on a year-on-year basis and 17% on a sequential quarter basis. EBITDA margin expanded by 460 bps on a Y-on-Y basis and 60 bps on a Q-on-Q, that is quarter-on-quarter basis, coming in at 11.4%. We have delivered higher operations, profitability and margins despite higher ad spends and rising input costs. This is a reflection of both the quality of our product portfolio and our intense focus on efficient operations. Profit before tax for the quarter amounted to INR 56 crores, growing 19x on a year-on-year basis and by 23% on a sequential basis. The reported profit after tax, PAT, for the quarter is INR 22 crores. I would like to highlight that in Q4 FY '21, there were 2 tax incidences, which I will explain now. First, the tax includes income tax outgrowth of INR 8.06 crore on the profit of INR 34.75 crore realized on slump sale of our water heater undertaking, post equity infusion by Groupe Atlantic into Hintastica Private Limited, which is now a 50-50 joint venture between Somany Home Innovation Limited and the Groupe Atlantic. If you would recall that during quarter 3 FY '21, the company had done slump sale of its water heater business undertaking to its wholly owned subsidiary Hintastica Private Limited. You may also refer to Note Number 4B to published financial in this regards. Secondly, pursuant to Finance Act 2021, the amortization of goodwill for the calculation of income tax is not allowed. The company had certain carrying amount of goodwill and based on Finance Act 2021, a deferred tax benefit of INR 800 -- a deferred tax benefit of INR 8.66 crore has been being derecognized in quarter 4 FY '21. You may also refer to Note Number 8 to published financial in this regard. Apart from above, our quarter 3 FY '21 tax included a write-back of earlier year of INR 4.27 crores. Without considering the aforesaid effect of these onetime taxes, the sequential growth is 17% and quarter 4 FY '21 close to 16x in Q4 FY '20 -- 16x to Q4 FY '20 PAT. I think let me repeat without considering the aforesaid effect of these onetime taxes, the sequential growth is 17%, and quarter 4 FY '21 close to 16x of quarter 4 FY '20 PAT. Now on an annual basis. On an annual basis, the consolidated revenue from operations stood at INR 1,775 crores, registering a growth of 10% over FY '20 revenue, despite losing major turnover in months of April and May 2020 due to country-wide lockdowns. EBITDA for the year grew by 43% to INR 161 crores. EBITDA margin came in at 9.1%, having grown by 210 bps over the last few years. If you recall, the company incurred losses during H1 FY '21 on account of lockdown, post which our recovery has been stripped. The reported PAT is INR 55 crore. And post removing the onetime income tax charges and benefit, as stated earlier, the like-to-like PAT growth is at 191%. I understand the aforesaid calculations may be a little difficult to review as such so -- and accordingly, I would request you all to read our results along with the underlying notes as stated in the results. The Board of Directors has recommended a dividend of 15% on paid up value of equity shares. Cash flow from operations too has improved. While debt has reduced by INR 138 crore. Moving on to the segmental financial performance. The Consumer Appliances business revenue amounted to INR 141 crore, registering a growth of 91% on a year-on-year basis, but was lower on quarter-on-quarter basis. The reason for which Mr. Kaul will elaborate on. EBIT for the segment came in at INR 7.5 crores, having grown from a negative EBIT of INR 0.6 crores in Q4 last year. We would like to reiterate that our consumer appliance business is a new business vertical, which we started in FY '15-'16. Since this was a distinct business division, the company made EBITDA level investments for the first 3, 4 years. Now with the buildup of sales, the division is PBT positive with healthy gross margins. We expect this PBT margins to further improve over next 2, 3 years with accelerated pace of growth and operating leverage. Now coming to Building products. Towards the Building products segment, the revenue stood at INR 459 crore, reflecting a growth of 67% year-on-year basis and 22% quarter-on-quarter basis. EBIT for the segment stood at INR 55 crores, increasing by 235% year-on-year and 62% quarter-on-quarter. Now coming to Retail. Our Retail business delivered revenue of INR 13 crore. It has come down by 20% year-on-year due to the closure of unfeasible stores in line with our strategy and focus on profitable growth. Sequentially, too, the revenue has degrown by 24% owing to Q3 being a seasonally strong quarter for this segment. I would like to highlight immediate development during the quarter, which pertains to the joint venture with Groupe Atlantic, a EUR 2.2 billion French multinational company with a dominant presence in the manufacturing, development and distribution of ecofriendly heating products and hot water solutions. Under the agreement, Groupe Atlantic has invested INR 68.3 crore in Hintastica Private Limited, a wholly owned subsidiary of Somany Home Innovation Limited for a 50% stake. HPL, Hintastica Private Limited, that is HPL, will set up a state-of-art subsidiary in Telangana for manufacturing of the water heaters, which will be sold under the brand name, Hindware Atlantic. The HPL will leverage Groupe Atlantic's technical power and proven expertise in manufacturing as well as Somany Home Innovation Limited's strength in marketing and distribution. And JV not only give us the opportunity to market the product in SAARC countries. Under this synergistic partnership, we will also sell other projects from Groupe Atlantic portfolio. We believe the JV provides us a new growth revenue to further scale up our presence and growth in the Consumer Appliances business. The current quarter has again seen various lockdowns across India, and of late, in the last few weeks, there has been some flattening of cases. Based on our experience last year and the current market conditions, our outlook remains positive, driven by confidence in our capabilities and position in our businesses. We will continue to drive growth through the introduction of new and innovative products that exceed the customers' expectations. There are understandably some constants in the current quarter due to the pandemic, both from a demand and supply chain perspective. However, as the environment stabilizes, we are confident of continuing to deliver the growth. With that, let me now hand over the floor to Mr. Rakesh Kaul to take you all through the Consumer Appliances business.

Yes. Thank you, Naveen, and good evening to all our partners, good afternoon rather. And a very warm welcome to all of you, and I hope all you and your loved ones are safe and healthy. And I pray for the well-being of all of you during these tough times. So let me take you about the key developments in the Consumer Appliances and the Retail Furniture business during the quarter of the year. So let me -- I'm pleased to say that we continue to be one of the fastest-growing companies in India in the Consumer Appliances segment, and we have attained leadership positions across many product categories. The success is largely owing to our significant investments in resources, in innovation and R&D province through our strong distribution reach as well. As far as the subcategories are concerned, kitchen appliances, the larger kitchen appliances continue to be the major growth driver for us under the Consumer Appliances business, accounting for almost 40% of the total revenue. We are a clear #2 value player in the kitchen appliance -- kitchen chimney segment as far as the value business is concerned. And while we have moved into the top 5 players in the kitchen hop segment. Again, a very fast growing segments. In the air cooler segment, which although saw a lot of pullback in terms of a poor season and lockdown, we have continued to be now being among the top 5 brands in the country. And a clear #2 on e-commerce, which is contributing to almost 1/4 of the industry revenues as of now. I would also like to spend just a few minutes elaborating on our focus on research and development and connected appliances. Let me tell you the greatest amount of pride that now we have the largest range of IoT or connected appliances products in India. And when we say largest, we mean about the payer companies, we have the largest range of IoT appliances in India. And recently, just a couple of weeks back, Hindware was named among the top global companies in the smart homes domain at Google's IO event, which is a very, very significant event of Google's global event. And during this global event, partners who have done a lot of work on the smart & connected homes, we are a participant of this, and let me say it with a great amount of satisfaction that Hindware appliances was one of the brands to be present in the MarQ Global list out there. We continue to strive to provide our consumers with intelligent and connected products that help make their lives easier and smoother. Our forte and our thought process always remains to transfer the power in the hands of the consumer and do the massification of technologies because we believe that technology should not be the sole preserve of a select few, but should be growing to the masses all across. The Hindware Connect app, which is as common as single app rather than multiple apps for a single company, so a single brand. So we have one single connect app, which serves as a common platform to connect control all of Hindware's IoT-enabled products. We introduced new products and enhanced some existing ones in our roster of IoT products during the year under review. And examples of this are our next-generation models of the Hindware Maxx Auto Clean, a patented technology, which is one step above the auto clean segment, an auto clean segment, which is one of the fastest-growing segments in the kitchen -- kitchen chimney segment and which is -- this Maxx Auto Clean is 3x more powerful than the ordinary heat auto clean chimneys. We also launched Spectra iPRO and Acura iPRO IoT-enabled smart desert and personal coolers. Coolers while being predominantly commoditized products, which are very functional in nature, we are one of the first brands in the country to actually develop smart & connected products in this category also because the aspiration of the consumer, even if it's for a functional product, is increasing by the day. And hence, we also have offered features such as Geofencing and Wi-Fi Direct and all Alexa-controlled features even for commodities like commodity-based products like air coolers. Innovation along with research and development and consumer feedback continues to play a very critical role in all our initiatives. These initiatives reflect in the launch of iFold, India's first collapsible air cooler where we've resolved the majority of the consumer's problem. When the summer season goes off, we had to place the cooler. The cooler can be collapsed in a matter of 1.5 minute and can be placed even as a table. So making it much more easier for a consumer to place the cooler at the end of the summer season. We also launched food sanitizer named as Activio and also we launched Hindware Purge surface cleaner. And these are all examples of our intention to help the consumers in these difficult times to make their place -- workplaces and their homes more safe and secure. And coming to the quarter of '21, quarter 4 of '21, the performance during the quarter was strong. Our revenue grew by 91% on the year-on-year basis, but understandably declined on a sequential basis. Given the fact that the kind of categories we are in, quarter 3 is always seasonally the strongest quarter for the business. Besides, quarter 3 also sees a very peak season for water heater sales because this is a peak winter season as well. So in Q4, the demand for water heater starts declining and demand for air cooler starts beginning to goes up. So Q1 sees very high demand for air coolers in anticipation of the summer season. However, in Q4 '21, also the second wave of the pandemic, the sentiments among the dealers and distributors levels was subdued and huge volatility and rising input price made that further adverse towards building inventory in the Q4, which reflects lesser growth than what we had actually projected for. In quarter 1 of FY '22, we are feeling the brunt of the pandemic as are so many other industries -- most of the industries, with many states being forced into local lockdowns due to an alarm increase in the number of COVID cases. This has translated into subdued demand for most of April and entire month of May actually has been a lockdown for a majority of the states. And while e-commerce, which is a significant growth driver for us in this Consumer Appliances business, even the demand in the e-commerce sector has been affected due to differing definitions of essentials, differing red states. Various states define essentials differently. And under this purview, many states have actually suspended the delivery of electrical appliances goods. That being said, this quarter has not seen any erosion into the business to the extent of last year's Q1 and we are hopeful of recovering quickly once the situation on the ground improves. Coming to the Retail segment, which has been largely now been driven by the -- our e-commerce business -- our e-commerce portal and the franchisee business. I'm happy to share that we have witnessed a second consecutive quarter of positive PBT in this business. This improvement indicates the success of our strategy of improving efficiencies and cost rationalization and also moving into the right business model. Furthermore, the decision to expand the business on a franchisee and online model over a capital-intensive approach is showing early signs of success. We are confident of this approach and will continue its implementation in the coming quarters and expecting a gradual improvement of this performance. So that was about the Consumer Appliances business and Retail business for SHIL stand-alone. I would now like to hand over the call to Mr. Pokhriyal to take you all through the sanitaryware and faucets business. Over to you, Sudhanshu.

Thanks, Rakesh, and very good afternoon to all of you. I'll take you all through the Q4 and FY '21 highlights for the sanitaryware and faucets business. Q4 FY '21 was a very positive quarter for us, which resulted in sales growth of 46% year-on-year and 19% quarter-on-quarter on the back of our quality product portfolio and the pickup in the real estate and construction activities. We expanded our offerings to include 45-plus new sanitaryware products and about 120-plus new faucets during the year. Some of these like tankless water closet and contactless sensor faucets are exciting products, which have garnered a high degree of positive response from the market. We also launched the first tankless wall-mounted water closet, which has a flush system with no cistern in the industry. It basically utilizes space intelligently and can be installed in a hassle-free manner without any wall breakage. This is the first of its kind in India and really an innovative product, which is very well appreciated by the industry. It gives me a great pleasure to also share with you that our high-quality and innovative products have won us the ET Architecture & Design Best Brand Award in bath and sanitation for the year FY '21 -- 2021. Our distribution channel remains as robust as ever, and we are constantly working on enhancing it to gain a wider market with deeper penetration. We discussed during the last call, we're working consistently to regain our lost ground by reestablishing our presence with many of our SHIL channel partners. It's a process that will gradually evolve and help us deliver our stated objective of being a leading player in the business. To boost our B2B business, we've created a separate institutional vertical during the year to strengthen our engagement with the architect community. We are currently working with more than 1,000 architects. We've been working towards enhancing the experience of our customers by providing them exceptional after-sales service through our vast Retail channel. We've made good progress in this regard, and we'll continue to do so to ensure that our customers get the best products and the best service to support it. We've launched more than 55 new brand stores, yes, further enhancing our brand visibility in FY '21. To engage customers and create demand, we've rolled out a number of ad and brand campaigns. We launched the campaign "Thoughtful is beautiful" during the last [Audio Gap] and which highlights the perfect combination of good looks and innovative features in our history. We also undertook various social media campaigns to connect with the mails in an endeavor to position us innovative design with aesthetic brand. This -- the campaign has actually received quite a lot of accolades from our consumers as well as our channel partners. I would like to now comment on the immediate outlook of the sanitaryware and faucet segment. While Q1 FY '22 commenced extremely positively in the first 2 weeks, the sharp increase in COVID cases leading to lockdown in several state has impacted demand starting third week of April onwards. We, however, continue to be positive about our opportunities and potential for our business as the situation improves. Let me now invite Mr. Rajesh Pajnoo to take you through the pipes -- plastic pipes and fittings business. Rajesh?

Hello. Yes. Thank you, Sudhanshu, and good afternoon to everyone here. Thank you all for joining this call today with us. As I have discussed, on previous call also, the plastic pipes and fittings business is a relatively new business for the company, but our progress in this space so far having become the fastest-growing player in this segment gives us the confidence and belief of making a mean for aversion. The performance for Q4 and FY '21 was in sync with this belief. We delivered a robust 146% sales growth year-on-year and a 28% growth sequentially to INR 151 crores in quarter 4 FY '21. We have mapped out an effective growth strategy that has proven its efficacy so far. And we are certain that it will continue to do so as we move into the coming quarters. During the year, we have added many, many more SKUs, taking the total count to over more than 1,100 SKUs, and we now have more than 200 active -- 210 active distributors across India. New launches during the year like column pipes for borewell applications, underground sewage pipes, overhead water tanks have all gone out positive response owing to their quality. We are very excited about our potential product pipeline in the coming year. Providing top-quality products has ensured that the brand through-flow by Hindware is a recognized name in the influencer community. We have been actively engaged with the influencer community in order to build and strengthen our network of channel partners through various campaigns. In this financial year, despite these pandemic times, we connected with our more than 70,000 plumbers via our former and informal means and even providing them training under the Pradhan Mantri Vikas Yojana, the RPL certificate program, to enhance their skills. Partnership with the influencer committee helps create a win-win situation and have thus far proven to be an effective and sustainable strategy for maximizing our growth. As mentioned by my colleagues, the lockdown across various states has not only impacted our demand, but also created logistical constraints. Performance in the ongoing quarter will understandably reflect the effects of these challenges. We continue to monitor the situation and remain fully prepared to bounce back as soon as normalcy returns. With that, thank you very much, guys. I would like to conclude our opening remarks and request the moderator to open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of Pritesh Chheda from Lucky Investment.

My question is, what is our medium-term target for the cash conversion cycle in the margin? Because -- and obviously, that directs us to the return ratios because the way we're operating today at about 8% to 10% margin and about 110 to 120 days of cash conversion. The scale-up of business will not may generate return ratios or may not generate cash flow. So what would be your medium-term targets on this? And I have one more associated question with this, which I'll ask later.

Yes. I'll answer this question. Like we have around 3 businesses that would have seen like Consumer Appliances, Sanitaryware and Faucets and the Pipes. So 3 businesses have their distinct market reach and the market in the way the market operates. And if you see on an average, we work around 100 to 105 days of overall in the inventory assignment or working capital assignment, which over, I think, last call also gave a guidance that on medium-term range, the plan is to win this by another 15 to 20 days, so maybe around 2 to 3 days down the line. It depends. But if all these things do get impacted by the events like COVID, again, the market is sort of a tail made where the shops are closed. The collections are getting impacted and due to the deferment of the sales due to lockdown, inventory accumulation happens. So the view here is that what I'm trying to say is based on the normalized market conditions, we expect the 15 to 20 days improvement to happen in next 2 years on the overall working capital cycle, on a consolidated basis for all the businesses together.

Margins and ROC?

It is very different to -- difficult to give this thing, guidance on exact margins and exact this thing. But again, we have given a guidance historically. Like in quarter 4, if you see on a consolidated basis, we have an EBITDA margin of 11.2%. The margins may again dip in quarter 1 because of the lower sales, but we feel that in 3 to 4 years' time, we should be able to build a consolidated EBITDA margin gain somewhere ranging between 14% to 16%.

Okay. Sir, my second question is with respect to cash flow of this year. So I was unable to comprehend the cash flow. So if you look at the cash flow statement that we have reported, there are 2 line items. One is where it is mentioned in the movement of working capital with mention that about INR 149.66 crores, which is the increase/decrease in trade and other liabilities. One is movement in short-term borrowing of INR 136 crore. So these 2 line items when I'm trying to correspond with the balance sheet, I'm unable to understand. So if you could help because that INR 149 crores seems to suggest that you've generated operating cash flow. So I was -- but when I tried to correlate with the balance sheet, I do not see any such line item. So...

So I think the way the whole confusion is coming while calculating is that while you see the receivables, receivables while reporting in the cash flows includes a figure of somewhere around INR 52 crores, which is on account of a slump sale of the water heater business. And the -- because there was a settlement period which was to run, and there was a payment period as per the slump sale agreement. So the money for that has come post March 31 in the month of May after the settlements have been done. So I think that is one figure. But definitely, we can -- it's difficult to answer this question on a call, we will definitely get back to you on this.

Okay. Sir, my other question is on the appliances business. I just wanted to understand what is the scale and stature of the distribution channel that we have now created because appliances either diametrically opposite distribution versus the sanitaryware, right? So what is the scale of distribution that we have constructed versus the industry? And what is the extent of e-com sales that we are doing? And my second question on that is pipes and fittings is where we do not -- may not have a value-add product offering to make, unlike what we did in appliances. So what is the strategy there? And what is the scale and size of business in pipes and the kitchen fittings or those furniture fittings that we are looking over the next 3 quarters?

So I'll answer this question in 2 parts. So 1 part, I'll answer, and then I'll request Mr. Rakesh Kaul to take the answer of the part 2. So I think this has been our strategy. And this strategy, we have well communicated in each of our calls that it was the strategy of the organization to build 3 different distribution channels to the market. And one objective was to target the higher market size, like 10 years back, we were targeting on which sanitaryware. Then we added faucets. We are #1 player on sanitaryware, we are now #2 player on faucets. Then we started with the consumer products in the pipe. On the consumer product, now we are #2 player on the chimneys. And as Rakesh told in the call also that we are -- our position is strengthening there. Pipes is essentially sold through a hardware channel. That's the third channel we have. The idea and the objective is that over once the channels have now been well established, it gives us a lot of leeway and a lot of flexibility to introduce more and more products without having an incremental costs. So you use an operating leverage here to enhance your sales and enhance your margins. So that was the pot broadly on the strategy side and how we are working. And this is not something new we are saying. We have been telling this to the entire investor community for last almost 4 years in a similar manner. Rakesh, I think I would request you to take up the question how our expansion reach on the consumer side is there. Over to you.

Yes. Thanks, Sandeep. I think it's a very relevant question given the fact that India is a very diverse country, and we have more than 18,000 PIN codes and the kind of product categories we are into has essentially and historically been driven by distribution by the existing players. However, having said that, we moved into a very, very robust strategy 5 years down the line when we launched these products into the business. And over a period of next 4 years, we'll launch 7 more categories within the Consumer Appliances business. We were very clear from day 1 that over a period of next 1 decade, the consumer habits and the preferences of the consumer as far as the buying is concerned, it will change dramatically. It will change dramatically. In fact, it's changed more dramatically post COVID to more digital-first approach. And this digital-first approach to our strategy, which we started way back in 2016, have started giving us excellent results. While we believe that India is a huge diverse country with more than 4 crore shopkeepers and around 100,000 retail shops of the electrical appliances. We have moved prudently forward in the last 4.5 years. We've created a retailer base of more than 10,500 retail outlets, and we have closed 1,500 distributors serving those retail outlet. And we have covered more than 1,700 towns. This is possibly one of the fastest ever rollout of any consumer appliance brand in India in the electrical appliances segment in just a span of 4.5, 5 years. Adding to this, our focus right from day 1 on the digital channels has given us enormously brilliant results so much so that in the category of kitchen chimneys, we are a clear #1 as far as the digital channels are concerned with a market share of approximately 35%. And in the category of air coolers and water heaters, backed by the GfK report, we are clear among the top 2, top 3 players in each of these categories, and we are growing rapidly in the area of water purifiers. What has helped us in the overall business is also that the contribution of digital channels. So the overall industry has really moved swiftly. For example, for a category of air coolers, which was insignificant on e-commerce 4 years down the line, today, e-commerce's contribution of air coolers is almost 1/4 of the total industry size. And so for various categories, it is ranging between 17% to 20%, 30%. So our focus and our presence on e-commerce channels has given us the overall growth in the business and despite -- and making us stronger on the e-commerce also helps us to make our brand and product much more visible, which helps our off-line partners also, because the demand around the brand has increased. And also, our focus on innovation and differentiation in various categories has further propelled our brand in the offline channels. And going forward, we will start what is called the hyperlocal reach, whereby which we'll try and connect majority of our distributors with our e-commerce-led approach so that we can bring the offline distributors also as a part of the growth story of e-commerce. I hope that answers your question.

Just to clarify, it's 10,500 retail on a 110,000 universe, right? So 10% is your distribution reach as of now?

No, I think when I said 100,000 retailers, it also talks about various other categories where we are not present. For example, we didn't talk about mixer grinder, small domestic appliances, which has a retail base. So as far as the current appliances industry, the categories where we are present in, we have reached a numerical reach of around 35% to 40%.

Okay. Okay. And sir, that pipes and furniture fitting, what is the scale of business that you're looking in 5 years?

So kitchen and furniture fitting business fits in our larger kitchen appliances business. A larger percentage of 35% of our retail counters in the kitchen appliances business also are the hardware shops, which are basically also selling the kitchen furniture and fittings business. Let me also tell you that we have, like in our water heater business where we have done a JV with one of the largest partners in the world in HVAC, heating, ventilation and air conditioning. In kitchen furniture fittings business, we are also tied up with the world's third largest in kitchen furniture fittings business, which is FGV, which is an Italian company of around USD 400 million. And so we have got very, very superior and technologically much more enabled products. From a Retail channel perspective, as I mentioned that 35% of our existing channel of kitchen appliances counters are hardware counters, which are one of the biggest sellers of kitchen furnitures and fittings business. The total industry size as of now is approximately around INR 2,200 crores to INR 2,500 crores. So that's the kind of market opportunity as of now.

I was asking what business do you think you will achieve in 5 years' time in pipes and in furniture fittings?

So 5 years...

Yes, we have already given the guidance that in around 4 years, we feel the pipe business will be INR 1,000 crore plus in terms of revenues based on current market conditions.

And fitting, furniture fitting?

Fitting separately, we don't want to give a guidance. As such, we have given a guidance on the overall consumer business, which is ranging between INR 1,300 crores to INR 1,500 crores in the next 4 years.

[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial.

Congrats on a good number. Sir, firstly, can you give us the sales of Pipes business for FY '21 full year and also if you can give for FY '20, how much it was?

So we have given a quarter number, which is around INR 151 crores, which has happened for the quarter 4 because this business is on a high-growth trajectory. And given the fact that we lost some turnover in the initial part of the quarter 1. So on a year-to-year basis, if you see, like quarter 3 sales was INR 117 crores and now it's INR 151 crores. So you were looking at a number of -- absolute number you're looking? Or what is that?

Yes. Absolute, how much was the sales for full year FY '21?

Okay. Just 1 minute. So full year FY '21 is INR 400 crores of sales, which last year was INR 250 crores. That represents a growth of 60%.

Okay. Now sir, second question is on the BPD business, so when we like give a segment-wise result, the BPD business has done an EBIT margin, I'm talking about the EBIT margin, of around 11% this quarter and around 9%, 9.5% in Q3. Now before the demerger, so BPD business used to do around 14% EBIT margin. And due to the transfer pricing, whatever the margin HSIL is getting, we were assuming that this can be around 10%, 11%. So given the low base of pipes and fitting, also we reached the 10%, 11% margin. So what kind of margin we can do in BPD business once the pipes and fitting get even more scale?

So if you see, we have been telling historically, it's very difficult for us to give very immediate quarters, what will be the number. So we don't want to give due to the insider things. But the medium- to long-term range, we have already clarified that like -- I just spoke, Pipes will be INR 1,000 crore plus. Building products will continue to grow at almost 1.25x to 1.5x the market size. So we have strategy in place for that. Consumer products will continue to grow and maybe touching around INR 1,300 crore to INR 1,500 crore range. And almost all the product baskets, which we have and all the product categories, which we are let it be Consumer Appliances or Building Product or Pipes, so our EBITDA margins should be in the range of around 14% to 16% on 3 to 4 years' time. You can see right now in quarter 4, the consolidated EBITDA margin is around 11.5%. And which we feel in next 3, 4 years, we should be able to build slowly additional margins into the business.

Okay. And last question from my side. So we did the JV for water heater business. Any more such tie up or anything planned in the future for any other products?

So as we have told that as a part of strategy, now SHIL as a group is very uniquely placed in the market today with all the investments which we have done into creation of these verticals, let it be the Consumer Appliance vertical, let it be the Pipes vertical, which essentially sells through the hardware channel and also the Building products. So we keep talking to many players globally to bring their products into India. Rakesh has talked about this furniture fittings, which is there, which is FGV. So maybe we want to first test the waters, test the waters with all these foreign partners and then evolve that business, how that business can be scaled up over a period of time. So we now have an environment. We have those capabilities. We have those skill sets inside the organization to super impose more and more products onto our go-to-market channels and -- so that our growth can be more exponential in times to come.

So is my understanding right that in this JV, whatever water heater will be manufactured, that will also be used for export like for Atlantic?

So basically, we can -- we feel that we can be able to use this entire manufacturing capacity to cater to India. And as a part of the JV agreement now, SHIL can also service the SAARC countries as per the approved JV plan. If surplus capacity is there, then we can look at the export market.

Okay. And one last question. On the Retail business, so I assume that we have done a turnaround due to -- after shutting our own stores and now the focus is more on a franchise model. And we tried to be positive profit in terms of profitability. So what would be the strategy going forward? Will be in maintaining the current franchise store and more looking at online? Or will be expanding this '20 on franchise stores also?

I would request Mr. Rakesh Kaul. Maybe if you can take this question, please?

Yes. Thanks. So after doing the restructuring of the business model for our Retail business, so I think we no longer call it a Retail business. It's more of e-tail and franchisee business model. We will continue to focus on building the brand because we have a very superior product range in furnitures. And through this differentiation, we would like to expand to more franchisees and also have a robust approach on our e-commerce website, which is evok.in. Let me tell you that we now witness almost on 1 million unique visitor sites to our website, and our revenues have increased by more than 50% over the last year for the e-commerce business and significantly increasing franchisee business. So going forward, we will integrate our e-commerce and franchisee business through a hyperlocal mechanism, which will entail that our ever-growing franchisee network across the country will also gain from our increase in the e-commerce business. Okay. I hope that answers your question.

Yes.

The next question is from the line of Jehan Bhadha from Nirmal Bang. [Operator Instructions]

If I look at the segment margins for Consumer Appliances, it has declined from around 9%, 10% in the previous couple of quarters to around 5% in March. So any particular reason for that? And going forward, what will be the normalized margins for this segment?

So normalized margins, I think we have already answered this question. I've taken this question twice in the last 2 calls. Rakesh, I think if you can explain the quarter 4 rationality, I think.

Yes. Actually, our margins of quarter 3 were basically the normalized masses and going forward will improve on the quarter 3 margins. I'm talking about quarter 4, we had the exit of the water heater seasonality. So that contributed to the dip in overall margin. And besides, we had a huge headwind in terms of huge product price increases in raw material and input prices. It significantly increased the prices of the products, particularly in the category of air coolers and kitchen appliances. While we continue to try and maintain our margins, but since there was a lag period and the industry also did not respond kindly to the preseason buying because of the huge increase in prices, that put us under significant pressure on the margin front. However, having said that, it's more of a temporary event till the time the situation stabilizes. The traders and the distributors also did not -- did the preseason buying at the agreed price because they waited that let the season come and we'll buy at the increased prices. But then the season actually started coming and the lockdown started happening in the middle of the March. So that attributes to a little bit of erosion in the EBITDA, not in the -- so much in the gross margin, a little bit in the EBITDA because of that. But having said that, I think once the situation normalizes, we will continue to take quarter 3 as a benchmark for margins.

Right. Okay. So we can assume that from September quarter onwards, things should normalize?

Yes. I mean the ground situation -- as much as the ground situation improves considerably. Because unlike last year, I think when we had challenges on the supply chain because once the lockdown was unlocked last year, you would have seen the predominant challenges were actually from supply chain. But this time around, when the unlock starts happening as early as Monday, I think the challenges will be more from the demand side than the supply chain side because this time around, the lockdown has not impacted the supply chain so much as might have impacted the demand. So going forward, we'll closely monitor the demand in the consumer sentiments and accordingly, calibrate our approach to see that our margins and our EBITDA doesn't suffer in the forthcoming quarters.

The next question is from the line of Uttkarsh Sogani from Moneybee.

My question is on the advertising part, sir. What is the advertising budget?

Generally, as a group level concept, we try to have, let's say, the advertising budget of around 4% to 5%. But the spending depends on the timing, which is an opportune time. So that's the broader guidance, which we have given on the advertisement costs on a group level.

Okay. And secondly, from -- my question is regarding the Building products division. Sir, we get majority of our supply from HSIL. So are we facing any -- are they facing any production issue currently?

No, there are no production issues from HSIL, which is now a vendor to us. We source on senatorial side, almost 70% material from them and faucet around 50% to 60%, maybe side-by-side the sourcing from the market also. But as such, on the sourcing side, there are no problems as such.

The next question is from the line of Anoop from Equity Intelligence.

Hello, you can hear me? Hello?

Yes, we can.

So congratulations on a good set of numbers. So my question is to Mr. Rakesh Kaul. So when we say that we have a reach of around 10,500 retail outlets with respect to this Consumer Appliances business and when we say that we are targeting around INR 1,300 crore to INR 1,600 crore of revenue in the next few years, so I would just like to know the strategy with respect to the service aspect of this Consumer Appliances business going ahead? So basically, even if we go from an IoT perspective through our app or even otherwise, unlike our other businesses, we need to get the service infrastructure in place for the after-sale service to these appliances, that is what I understand. So what would be the way forward in this respect? And what is our current network and reach with respect to the service aspect of the business?

Yes. Thanks for this question. I think after-sale service is one of the top most pillars of this business actually and that contributes significantly to the consumer satisfaction. And we have been very clear from day 1 that whenever we are expanding distribution, before expanding distribution, the after-sale service should be in place. So today, when I just -- in the earlier question, I talked about being present in 1,700 towns and more than 11,000 PIN codes across the country. We have created a network of close to 400 authorized service centers across the 1,700 towns. So these 400 authorized service centers today are covering 1,100 PIN codes. And going forward, I think in next 3 to 4 years, our service centers count will actually touch 1,000 in order to service the kind of turnover, which we are looking to do in the next 3 to 4 years. And also to tell you is also is apart from -- we have a very -- we have an app called Hindware Connect app today, which has got massive number of downloads on the consumers' mobile phones. And today, more than 4% of our monthly calls, calls relating to repair, installation and other services. We received almost 4% of calls on the Hindware app. So thereby leading to tremendous amount of consumer satisfaction. Because in this case, he does not actually have to pick up the phone and call the call service center and keep on hanging and explaining this problem. All he has to do is on the app, he goes to the app. There is a signature of a mobile. He just need to tap that, and the call will reach the nearest customer service center, who will call the customer back and ask about the problem and arrange for the visit. So our expansion of service network into Tier 4 -- Tier 3, Tier 4 towns is a progressive one. And we believe that in order to reach to next 5,000 PIN codes in next 3 to 4 years, we'll have a coverage of more than another 500 service centers to be added in the next 4 or 5 years.

Okay. That is great. So just to understand this -- our product differentiation or the service differentiation that we are offering with respect to Consumer Appliances with IoT enabled, what exactly do you envision maybe going ahead? Is it an entirely connected set of appliances wherein the consumer -- the end consumer does not even have to bother about, say, for example, this water purifiers. If there is a service to be done, will it be automatically scheduled? And how is this entire mechanism, what is the process that you have put in place? And what is the vision for this particular? See, we all know that IoT is going to be the future, and we are not yet there. But what is the vision for this particular segment that you have as a leading player, especially when somebody like Google is appreciating you? There has to be some core differentiation from the part of the company, right? So if you can just throw light on that.

Yes. I think, which I said, the basic premise of -- the basic underlying thought of this organization is to be a thought leader in all the categories where you are. And when you see a thought leader, you need to have a differentiated approach. And the thought leader does not talk to very selective or the top layer of the society, we talk to the mass because India is more about mass. As I told you at the start in a different question that we want to massificate technology. We want technology to reach millions of consumers. We want to make the lives of the consumers simple. We want to ease the usage of the consumers. We want to transfer the power in the hands of the consumers. And you're rightly given examples that how IoT and connected appliances can actually transfer the power in the hands of the consumers. And we have some very exciting products where we are very, very consumer-centric. Let me tell you -- give you an example of the water purifiers. Now traditionally, water purifiers business has also been dwelled a lot on after-sales service. The consumer after 1 year has to replace its filters, whether its filters are not bad or they need to be changed. So we have a brilliant product, which gives a real-time filter indicator, which is an IoT appliance, which basically tells the consumer that -- it gives an alarm that when his filters actually needs to be replaced, rather than depending on the local service center, who will tell and tell him that no your filter has gone bad. So the real-time filter indicator, if he has put that, will give an indication or an alarm to the nearest service center and the nearest service center will call the consumer and tell him that, look, it's time to change your filters. Now for someone who has got a smaller family, the filters could be changed in 2 years. And somebody who has got a bigger family could -- and the water consumption is higher, could change it in 6 months. So here is what is the benefits of the consumer. So we are telling the consumer that you change your consumables or filters when it's the right time to do. So we are in a way enabling consumers to move the power in their hands. So I think this is one of the few examples, which through our connected appliances, we want to make the lives of the consumer easier. For example, in a product category like air cooler, we brought IoT and we'll have a variable humidity controller. Now air cooler is a very unidimensional product, which just cools and which is just functional. But many a times in the night when the temperature maybe starts dipping, you have to go up and switch off the cooler. So through this variable humidity controller controlled by a mobile app, you can actually decrease the ambient temperature like an air conditioner in a room so that you don't actually have to get up and switch off the cooler or make it a little bit lesser. So I think these are some of these ease of usages. And we want consumer centricity to be at the core of our product offerings, and we'll continue with that in future also. I hope that answers your question.

Yes. To an extent, yes.

[Operator Instructions] The next question is from the line of [ Manish Bera ], individual investor.

So my first question is on your growth trajectory. So it seems like the company will be growing very, very fast. So according to my calculation, in 4, 5 years' time, probably you have to invest maybe like INR 1,500 crores or something like that because the working capital requirement is like 100 days and also maybe some tangible investment. So my question is clearly here, like will you be able to reinvest back in the business from the -- from the business -- from the cash flow that the business generate? Or you have to restore to some sort of debt?

So I think if you go through the pure financial fundamentals, the debt pay is the cheapest cost of funding today because, let's say, the debt which we have is coming at around, let's say, around 7% pre-tax. And we are all tax-paying companies. So post-tax, costs will be up by around 5%. The cost of equities are still very high. But given the fact that this vertical today is not capital intensive and the profits which are being generated. So if you see our consolidated cash flows, we have stated there that one big utilization of money has been towards utilization -- prepayment of the working capital elements, which is there. So it depends on the scenario, but we feel that wherever necessary, we will raise debt for the long-term funding, we'll raise long-term debt and for a short term funding, we will raise short term debt, so that we are adequately leveraged and take the maximum benefit out of the tax opportunities or the tax advantages, which we get using and also the lower cost of debt so as to create a much bigger valuation on the bottom line.

Okay. And the second question, I just got a feeling like the sanitaryware maybe we have lost markets before, like 2, 3 years before like -- because we are the biggest player. And just by your talk, it seems like you have lost some market share there. Before, there was problem or some issue. So what was the issue there? I mean the sanitaryware -- now of course, we are growing again, but maybe we have lost some distributor there or something like that. So maybe can you explain what was the issue really there?

So I'll request Sudhanshu, who runs this business to take this call, please -- to take this -- answer this question, please. Thanks.

Yes. So in the last 5 to 6 years, I think we've seen extended competitive pressures in the sanitaryware and faucet business. This is what we've seen, especially from multinational companies as well as many of the Indian companies venturing into the sanitaryware area, for example, increased from companies which were in tyres, which have now come into sanitaryware. So the increased competitive pressure within the sector actually impacted a bit in terms of our, I would say, the sanitaryware business as such. And additionally, we also forayed into our new faucet business, which happened in the last few years in a separate vertical. So this resulted in a bit of loss some of -- in some of our channel partners, which we have now started getting back in with our innovative products and increased marketing spend. And of course, more channel friendly policies. So I won't say it as an overall loss, but in some pockets, in some markets, wherein some dealers who had association with some other organizations, which were in adjacent categories who ventured into sanitaryware, there was some impact in our sanitaryware business.

Okay. And maybe if I can just chip in for the last one. So you have been saying, I mean, the innovation is the key theme forward for this company. So just wanted to know how much is our R&D spending each year? And if there are any plans or any innovation that you have done very recently or you are going to come out with a new product that is more innovation based in next 6 months or 1 year or 2-year time frame?

So we are investing heavily in terms of our timings into the -- timing in the manpower cost in terms of research and developing new product development. The idea is to make the life of consumers easy. So the R&D, which we are doing is not a sort of a capital-intensive R&D. So as a percentage to the sale, it will be very minuscule. But our -- all the initiatives, which Mr. Rakesh Kaul has spoken about, so as to make -- these are more highly digital initiatives, making product life easy, making product usage easy and making the life of consumer easy. So our investments are going towards these. And today, the spend on R&D is not that big. It's less than half a dozen, maybe 1% on the sale side. But the initiatives are focused on creating a huge valuation thought, how the consumer value the product in terms of the usage. It's consumer valuation of the product rather than giving a new product spending into the new product. I hope I answered your question.

Yes, yes.

Ladies and gentlemen, due to time constraint, we take that as the last question for today. I would now like to hand the conference over to Mr. Sandeep Sikka for closing comments. Over to you.

Yes. Thank you, everybody, for participating in this earnings call today. So this year had its share of challenges, but we are happy that with the way we have combated this and the growth which we have achieved despite the constraints [Audio Gap]. It was a year that tested us on many fronts, but one that showed the true strength of our team, our business model ability to deliver despite the odds. Hindware is a strong brand and that has earned the confidence of millions of consumers in India. We further look to build on these learnings from consumers, leverage on our strength towards our contribution to further enhance this confidence as we straddle multiple categories. We are pretty excited about the prospects of our businesses and believe that we are well primed to deliver strongly as the environment stabilizes. Apart from the questions, I think we may have missed taking few questions. If you have any queries, please do write back to us or get in touch with Citigate, we'll be delighted to answer all those questions. Thank you once again for the participation and look forward to connecting you. Thank you very much.

Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you all for joining. You may now disconnect your lines.